A recent article talked about net worth – what it is and how the writer calculated his own, how it can be used to track financial progress, including toward retirement, etc.
I wrote the following comment which several blog readers did not like.
Or, you could link all your accounts, assets, debt in a tool such as Fidelity net worth calculator and everything except major changes such as selling a property is auto updated daily for you. All you have to do is lower debt balances.
I agree it’s an interesting number to know, but how necessary I’m not sure unless one is concerned about state and federal estate or inheritance taxes. Having it updated could be a big help for anyone settling an estate.
Using net worth as a guide to how well one is doing toward retirement may provide a false sense of security unless selling some major assets is part of the retirement plan. A third of my net worth is in two homes neither of which I view as a usable investment.
If you look at average and median net worth by age, you will see that older Americans have the highest average net worth. For example, the highest average and median net worth is the 65-74 age group – $266,400 and $1,217,700. While seniors have the highest net worth, 65 and older Americans have the lowest median household income.
Don’t confuse net worth with retirement savings and investments. You can’t live off your house – unless you sell it or take some form of loan against the equity – which lowers your net worth.
Is net worth important?
Net worth is one way to check your financial pulse and spot strengths and weaknesses. However, it isn’t a perfect picture. Just because someone has a high net worth doesn’t mean they have a high standard of living. For example, a person’s home may pad their net worth figure, but they can still be cash poor if they don’t plan to sell it and have no savings.
Curiosity about others’ net worth can motivate us to set and pursue financial goals. It can also make us feel unnecessarily inferior. It’s important to remember that net worth isn’t a fixed number. It can change — positively or negatively — with time.Nerd Wallet
I agree. I mentally divide my net worth into two separate categories: my “investable assets” which I gradually sell to fund my retirement, and the rest such as my home, vehicles, and other personal property which I do not plan to sell to fund my retirement.
Just wait until the politicians come after high net worth families instead of high income earners. What if your COLA was based on your net worth?
And no you can’t eat your net worth but could be forced to sell it off if you want to eat or live in a nursing home so it has some value.
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We’ve rewarded people who haven’t paid off their student debt (or attempted to since it appears the order is not legal). I don’t think it’s too much of a stretch for them to punish (or penalize) people that have saved for retirement. It will be called “equity,” and they will rationalize it however they see fit – not taking the sacrifice we’ve made to save along the way. What vacations or other material items did you do without saving for retirement?
I agree with Richard. Net worth is of limited value. As he points out – you have to live somewhere. The primary value of a home is shelter – like transportation is for a car.
With an IRA or 401 (k) – how much are they really worth after taxes are paid on any distribution are taken into consideration? On a house – how much would you net after closing costs and the real estate commission? Most folks probably count the house as worth the estimated selling price, but the net realized amount will be less – so their net worth is overstated. Investable assets are probably the best measure of how you are doing.
This sounds like a tempest in a teapot. I occasionally see articles referring to family net worth figures by age groups and there is a natural tendency to want to compare. That’s about all it is.
The wife and I use a spreadsheet and post updated retirement and other savings monthly. The “fixed” assets are updated annually so we don’t even look at them except once a year. It takes a few minutes at the beginning of the year and 5 minutes a month and I only stop and think about it if maybe we’re considering buying I bonds or whatever.
It is a good look at what is happening monthly in case one or both of us should happen to exit the planet.
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